European leaders yesterday struck a deal that promises to save the euro through greater financial integration among all European states bar the UK, one of Malta’s strongest allies on financial services.

“This is a successful summit for Malta because we have managed, albeit with difficulty, to safeguard our national interest”- Gonzi

The UK effectively used its veto to block an attempt, led by France and Germany, to get all 27 EU states to support changes to the treaties after it failed to get guarantees for the City of London and its massive financial services industry.

Initially, it looked like the agreement might only have 23 countries. However, Hungary, Sweden and the Czech Republic, which also wavered, eventually said they would take the agreement to their parliaments, leaving the UK on its own.

In spite of Malta losing a major ally in the battle to safeguard financial services – on which both countries depend significantly – the Maltese government’s lobbying still paid off because the introduction of a financial transaction tax and a common corporate tax base were dropped from the final communiqué agreed upon.

“This is a successful summit for Malta because we have managed, albeit with difficulty, to safeguard our national interest,” an exhausted but satisfied Lawrence Gonzi said yesterday afternoon after marathon talks that ran through the night, save for a short break between 5.30 and 8 a.m.

According to the summit’s conclusions, the 17 member states of the eurozone and nine out of the 10 remaining member states plan to sign a new intergovernmental treaty by March to strengthen fiscal union particularly in the euro area.

The new rules will have significant impact on Malta.

The island will have to adhere to stricter deficit and debt rules. The country will have to slash its deficit by at least 0.5 per cent of GDP a year in order to reach a balanced or surplus Budget. Failure to do so will incur automatic sanctions, defined by the Commission and the Council, should the country go beyond the threshold of three per cent of the GDP. The government is aiming to end the year with a deficit of 2.8 per cent.

The new rules will effectively mean that eurozone members will not have much room for manoeuvre when deciding their annual budgets because they have to stick to spending what they actually rake in.

Malta, as a signatory to the new treaty, will also have to submit a draft Budget to the EU for approval before presenting it to Parliament.

Another innovation will be a constitutional amendment with the agreement of the opposition to commit the country towards balanced budgets.

This “golden rule” – already adopted by some member states including Germany – will contain an automatic correction mechanism that will be triggered in the event of a deviation.

This will be defined on the basis of principles proposed by the Commission. Moreover, the European Court of Justice will have jurisdiction to verify the transposition of this rule at national level.

Dr Gonzi said that, although Malta was already moving towards a balanced Budget, with the only deviation happening in 2008 when the country was hit by a global economic recession, it agreed with a constitutional amendment to make sure that future Maltese governments followed this rule.

“We have to make sure that what happened to Greece will not happen again and all these measures point towards that direction.”

Asked whether the constitutional amendment would be treated with urgency, Dr Gonzi said he hoped that the opposition would also be on board so the change could be passed through Parliament in the shortest possible time.

In a statement last night, Labour leader Joseph Muscat said he realised the need to have legal mechanisms that ensured fiscal discipline. However, such mechanisms had to give the government enough elbow room to manoeuvre in exceptional circumstances, such as in a recession.

Dr Muscat urged the Prime Minister to ensure such flexibility would be ensured.

He expressed concern at the mandate given to the European Council to draw up a report on more fiscal integration.

Dr Muscat said he was willing to support the government, so long as decisions on taxes would continue to be made by the Maltese government. “Today’s deal does not seem to have overstepped this line,” he noted.

He made it clear he would never agree to a common consolidated corporate tax base or a financial transaction tax.

Agreement among member states was also reached on the bailout funds, with the €500 billion European Stability Mechanism entering into force next July, a year before it was originally planned to be in place.

Eurozone member states will also provide additional sources to the International Monetary Fund by up to €200 billion in the form of bilateral loans to ensure that the fund has adequate resources to deal with a potential worsening of the crisis.

Malta’s part in the new financial outlay is expected to be to the tune of €150 million, to be provided through the Central Bank’s reserves. Malta’s loan to the IMF will be based on commercial interest rates.

On the political level, the summit will be characterised by the UK’s isolation.

Although EU leaders played down the UK’s refusal to follow the other member states, unofficially many observers are interpreting the move as a new EU relationship with the UK.

The decision by Sweden, the Czech Republic and Hungary to consult their Parliaments before deciding to join is seen largely as a formality.

Commission president José Manuel Barroso said it would have been better had the deal enjoyed the support of all the 27 member states.

However, he said, he respected David Cameron’s decision.

“This summit agreed on issues that, until a few weeks ago, were unimaginable. Member states agreed to accept ‘intrusive powers of the EU’ in order to have a better union,” Mr Barroso said.